TITLE

Bills Digest no. 147 2009–10

Appropriation Bill (No. 1) 2010-2011

WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.

Section 83 of the AustralianConstitution
provides that no monies may be withdrawn from the Consolidated
Revenue Fund except ‘under an appropriation made by
law’. Laws authorising spending are either:

special appropriations, or

one of (usually) six annual appropriation Acts.

Special appropriations—which account for more than 80 per
cent of spending—are spending authorised by Acts for
particular purposes. Examples are age pensions, carer payments, and
the seniors concession allowance paid under the Social Security
(Administration) Act 1999, and Family Tax Benefits A and B
paid under A New Tax System (Family Assistance)
(Administration) Act 1999. The balance of spending is funded
by annual appropriations. Appropriation Bill (No. 1)
2010–2011 (the Bill) is an annual appropriation.

Section 54 of the AustralianConstitution
requires that there be a separate law appropriating funds for the
ordinary annual services of the government. That is why there are
separate annual appropriation Bills for ordinary annual services
and for ‘other’ annual services. The distinction
between ordinary and other annual services was set out in a
‘compact’ between the Senate and the Government in 1965
(the compact was updated to take account of the adoption of accrual
budgeting). Appropriation Bill (No. 1) is introduced with the
Budget and appropriates funds for the ‘ordinary annual
services of the Government’. Appropriation Bill (No. 2)
appropriates funds for other annual services. A third appropriation
Bill—Appropriation (Parliamentary Departments) Bill No.
1—funds the parliamentary departments.

The Senate’s powers in relation to
ordinary annual services

Section 53 of the AustralianConstitution
provides that the Senate may not amend proposed laws appropriating
revenue or moneys for the ordinary annual services of the
government. The Senate may, however, return to the House of
Representatives any such proposed laws requesting, by message, the
omission or amendment of any items or provisions therein.

Departmental expenses are essentially the costs of running
agencies, for example, salaries, depreciation and other day-to-day
operating expenses. It is important to note that while departmental
appropriations are designated for specific categories of expense
(for example, employee benefits and supplier expenses) and to
specific outcomes and programs, these designations are notional.
Rather, it is the total appropriation for departmental expenses
that is relevant. In other words, an agency is not bound to spend
departmental appropriations on the designated purposes and can, for
example, reassign funds to outcomes different from what was
designated. This provides agencies with flexibility as to how they
spend departmental appropriations.

Since accrual budgeting was introduced in 1999–2000,
agencies have received cash for depreciation even though they may
not have needed the funds to replace assets until several years
into the future. Agencies were supposed to hold the depreciation
appropriations as reserves until such time as they replaced
assets.[1] However,
the Rudd Government ceased these arrangements. From 1 July 2009,
the Government ceased funding for depreciation for collecting
institutions in relation to their heritage and cultural assets.

Starting with the 2010–11 Budget, the Government will
appropriate funds for asset replacement only when agencies are
expected to replace assets. This policy will apply to all other
(that is, non-heritage and cultural) agencies in the general
government sector. In short, asset replacement will cease being on
an accrual basis and will revert to the former cash basis. Funding
for asset acquisitions will be paid as equity injections, loans or
be included in departmental appropriations in the case of minor
assets (assets valued at $10 million or less):

From 2010-11, departmental items include
amounts specifically to meet costs associated with the replacement
and capitalised maintenance of existing departmental assets valued
at $10 million or less.[2]

Before the 2010–11 Budget, there was a class of
appropriations known as ‘previous years outputs
appropriations’. They were paid to agencies to reimburse them
for departmental expenses they incurred in the year before the
Budget year when agencies were required to undertake additional
activities but for which the government had not provided funds in
the additional estimates Bills. In other words, agencies received
no additional funding during the period between the additional
estimates Bills and the following year’s Budget. Previous
years outputs appropriations were paid through Appropriation Bill
(No. 2).

Starting from 2010–11, recognition of this category of
appropriation will cease. In short, agencies will be expected to
meet the cost of additional activities from their existing
departmental appropriations. Agencies may be reimbursed in the
following financial year as explained in the Explanatory
Memorandum:

Departmental items also include supplementation
in circumstances when agencies were directed by government to
undertake additional responsibilities in the previous financial
year. This applies when the direction was given, or a decision to
propose further appropriation Bills is made, in a timeframe within
which it is not practicable to include the expected expenses in a
further appropriation Bill for that financial year

Generally, agencies are expected to meet the
cost of additionally directed activities from their existing
appropriations, which may then be replenished by a departmental
appropriation in the following financial year. Provision of such
payments was previously covered by a class of appropriations known
as “previous years’ outputs” within “other
departmental items”, currently clause 10 of
Appropriation Bill (No. 2)2010-2011. The
Appropriation Bills no longer recognise the term
“Previous years’ outputs”, as the
concept is now integrated within departmental items.[3]

Administered expenses are essentially the costs of the programs
that agencies administer on the government’s behalf. An
example is the age pension. Most administered expenses are funded
through special appropriations but some are funded through the
appropriation Bills (the Bass Strait Passenger Vehicle Equalisation
Scheme is an example of the latter). A key feature of administered
expenses is that unlike departmental expenses, agencies cannot
control the amounts expended. Thus spending on, say, age pensions
is determined by the number of qualifying applicants, the pension
rates and so on, none of which the relevant agency controls. Unlike
departmental appropriations, administered appropriations must be
spent on the outcomes to which they are assigned.

Agencies subject to the Financial Management and
Accountability Act 1997 (FMA Act) are financially part of the
Commonwealth. Bodies subject to the Commonwealth Authorities
and Companies Act 1997 (CAC Act) are legally and financially
separate from the Commonwealth. Examples of CAC Act bodies are the
Australian War Memorial, Screen Australia, and the Australian
Broadcasting Corporation. FMA Act agencies are appropriated amounts
for the purposes of making payments to CAC Act bodies. For example,
the Department of Broadband, Communications and the Digital Economy
passes on funding to the Australian Broadcasting Corporation and
the Special Broadcasting Corporation. CAC Act bodies have to
request payment from the relevant agencies.

Departmental expenses and administered expenses contribute to
outcomes. Outcomes are the results or consequences for the
community that the government wishes to achieve. An example,
outcome one in the Attorney-General’s portfolio, is:

A just and secure society through the
maintenance and improvement of Australia’s law and justice
framework and its national security and emergency management
system.[4]

Programs contribute to outcomes. For example, six programs
contribute to the above outcome including ‘national security
and criminal justice’ (program 1.6) and ‘justice
services’ (program 1.3).

Reduction processes

Appropriations for departmental and administered expenses can be
reduced. It is sometimes the case that an appropriation for a
departmental expense exceeds what is needed. However, departmental
appropriations do not automatically lapse if they are not spent. In
these circumstances, a ‘reduction process’ to
extinguish the unspent amount is available. Under this process, on
request in writing from a minister, the Finance Minister may issue
a determination to reduce the agency’s departmental expenses
appropriation.

Appropriations for administered expenses may also be subject to
an annual process to extinguish amounts if they are not required.
The amount identified as spending on administered expenses in
agencies’ financial statements—as published in their
annual reports—is the basis for this process. In short, the
amount of the reduction is the difference between the amount
appropriated and the amount spent as shown in the agency’s
financial statements. In effect, the unused amounts are returned to
consolidated revenue.

As with departmental and administered appropriations, CAC Act
body payments may be subject to a reduction process.

The advance to the Finance Minister (AFM) provides flexibility
by authorising the Finance Minister to expend money when the
Finance Minister is satisfied that there is an urgent need for
expenditure during the financial year but for which there is not a
sufficient appropriation. The Finance Minister can expend money
from the AFM only if the proposed spending meets certain criteria,
namely, that there is an urgent need for the expenditure that is
not provided for, or is insufficiently provided for, because of an
omission or understatement or because of unforeseen
circumstances.

When the Budget is brought down, the Government
releases Portfolio Budget Statements. They contain, amongst other
things, information on the amounts that agencies will receive
through the Appropriation Bills as well as from special
appropriations and special accounts. The Portfolio Budget
Statements are ‘relevant documents’ for the purposes of
section 15AB of the Acts Interpretation Act 1901. This
means that the Portfolio Budget Statements can be used to help
interpret an Act.

Financial
implications

The Bill appropriates about $71.95 billion for the ordinary
annual services of government compared with about $71.28 billion in
Appropriation Bill (No. 1) 2008–09. Schedule
1 contains the amounts appropriated and the purposes for
which the funds are appropriated as defined by outcomes. As usual,
the single largest portfolio appropriation is for defence with some
$23.52 billion.

The provisions in the Bill are mostly identical to those in
Appropriation Act (No. 1)
2009–10. The following therefore focuses on changes from
that Act and new provisions in the Bill.

Part
2—Appropriation items

Clause 6 Summary of appropriations—states
that the total of the items specified in Schedule
1 is $71 949 922 000.

Clause 7 provides that the amount specified in
a departmental item for an agency may be applied for its
departmental expenditure. The note to the clause observes that the
Finance Minister manages the expenditure of public money under the
Financial Management and Accountability Act
1997.

Clause 8 deals with ‘administered
items’. Subclause 8(1) confirms that if an
amount is specified as an administered item for an outcome, then
money can be expended to achieve that outcome. Subclause
8(2) provides that where the Portfolio Statements indicate
that an activity is for an outcome, the amount in the administered
item is taken to contribute towards the achievement of that
outcome.

Clause 9 deals with ‘CAC Act body payment
items’. As noted above, CAC Act bodies have to request
payment from the relevant agencies. Subclause 9(1)
empowers agencies to make payments to CAC Act bodies for the
purposes of those bodies. Subclause 9(2)
provides that if a CAC Act body is subject to another Act, and that
Act requires that amounts, appropriated by Parliament for the
purposes of that body to be paid to the body, then the full amount
of the CAC Act body payment must be paid to the body.

Part
3—Adjusting appropriation items

As noted above, there are processes for reducing departmental
appropriations, administered appropriations and payments to CAC Act
bodies.

Clause 10 Reducing departmental items deals
with departmental appropriations. Subclause 10(1)
specifies who can ask the Finance Minister to reduce departmental
expenses. In the past, this power was limited to two categories of
person and they will continue to have this power
[paragraphs 10(1)(b) and
10(1)(c)]. Paragraph 10(1)(b)
empowers the Minister for an agency to ask the Finance Minister to
reduce a departmental item for that agency, while paragraph
10(1)(c) enables the Chief Executive of an agency, for
which the Finance Minister is responsible, to ask the Finance
Minister to reduce a departmental item for that agency.
Paragraph 10(1)(a) creates a third category of
person, namely, the Prime Minister or a Minister acting on behalf
of the Prime Minister. The Explanatory Memorandum is silent on why
it was necessary to introduce this new provision.

Subclause 10(2) specifies that the Finance
Minister may make a determination reducing a departmental item by
the amount in the request. Subclause 10(3)
provides that the determination will have no effect to the extent
that it would reduce the item below nil.

Subclause 10(5) is new. It provides that
despite subsection 33(3) of the Acts Interpretation Act 1901, a determination made
under subclause 10(2) must not be rescinded,
revoked, amended or varied. Subsection 33(3) of the Acts
Interpretation Act 1901 provides:

Where an Act confers a power to make, grant or
issue any instrument (including rules, regulations or
by‑laws) the power shall, unless the contrary intention
appears, be construed as including a power exercisable in the like
manner and subject to the like conditions (if any) to repeal,
rescind, revoke, amend, or vary any such instrument.

Subclause 10(5) thus overrides the power in
subsection 33(3) thereby ensuring that a previous determination
that the Finance Minister has made cannot be rescinded, revoked,
amended or varied.[5]
A determination by the Finance Minister is a disallowable
instrument [subclause 10(7)].

Clause 11 Reducing administered items contains
the process for extinguishing appropriations for administered items
that are not needed. As noted above, in essence, the amount of a
reduction is the difference between the amount appropriated and the
amount spent as shown in an agency’s financial statements.
Subclause 11(1) provides that if the amount shown
in the financial statements of an agency’s annual report
shows that the expensed amount for an administered item is less
than the amount appropriated for that item, then the amount of the
reduction is the difference between the appropriated amount and the
amount in the annual report. Subclause 11(2)
enables the Finance Minister to override subclause
11(1) in three ways:

when the Finance Minister issues a determination that
subclause 11(1) does not apply
[subparagraph 11(2)(a)(i)],
or

when the Finance Minister decides that the amount in the
determination should be the same as the amount in the annual report
[subparagraph 11(2)(a)(ii)], or

when the annual report does not specify an amount, the Finance
Minister can determine the required amount [paragraph
11(2)(b)].

The Explanatory Memorandum contains the following explanation of
the circumstances under which it may be necessary to invoke
subparagraph 11(2)(a)(ii) and paragraph
11(2)(b):

The power in subparagraph 11(2)(a)(ii) is
to ensure that the amount published for the administered item in an
agency annual report can be corrected through the determination if,
for example, the amount published is erroneous or rendered out-of
date by later events. Additionally, the power in paragraph 11(2)(b)
is to provide the Finance Minister with the capacity to make a
written determination in those cases where an agency has failed to
specify a required amount in its’ [sic] annual report. In
those cases the amount specified in the determination as the
required amount will be taken to be the required amount for the
purposes of subclause 11(1).[6]

Subclause 11(3) provides that the Finance
Minister’s determination, made under subclause
11(2), is a legislative instrument, that section 42
(relating to disallowance) of the Legislative Instruments Act 2003 applies to the
determination, but that Part 6 of that Act (relating to sunsetting
provisions) does not apply to the determination. In short, this
means that the Finance Minister’s determinations are
disallowable by Parliament, but once made, will not expire.

Clause 12 contains the process for reducing CAC
Act body payments. This is almost identical to that for
departmental items in clause 10. As with
paragraph 10(1)(a), paragraph
12(1)(a) is a new provision which extends the power to
request a reduction—in this case to a CAC Act body
payment—to include the Prime Minister or a Minister acting on
behalf of the Prime Minister. Subclause 12(5) is
identical to subclause 10(5), that is, it provides
that despite subsection 33(3) of the LI Act, a determination made
under subclause 12(5) must not be rescinded,
revoked, amended or varied.

Clause 13 deals with the advance to the Finance
Minister (AFM). Subclause 13(1) contains the
criteria the Finance Minister must apply before the Finance
Minister can make payments from the AFM. The criteria are that the
Finance Minister must be satisfied that there is an urgent need for
expenditure that is not provided for, or is insufficiently provided
for, in Schedule 1 because of an omission or
understatement or because of unforeseen circumstances.
Subclause 13(3) limits expenditure from the AFM to
$295 million. Subclause 13(4) provides that where
the Finance Minister has made a determination to expend money from
the AFM, the determination is a legislative instrument. Further,
the determination must be tabled in Parliament but is not subject
to disallowance or sunsetting.

Clause 14 Determinations under previous Acts is
new. According to the Explanatory Memorandum:

The purpose of clause 14 is to ensure that
any items, which have been reduced by instruments already made
under the listed appropriation Acts, cannot be restored by means of
a later determination.[7]

Clause 14—similar to
subclauses10(5) and
12(5)—provides that despite subsection 33(3)
of the Acts Interpretation Act 1901, a determination made
under any of the following provisions must not be rescinded,
revoked, amended or varied on or after 1 July 2010. The
‘following provisions’ are the previous Appropriation
Acts listed in paragraphs 14(a) to
14(z).

Clause 15Reducing items in previous
Acts is also new. The Explanatory Memorandum notes:

Clause 15 provides a process for reducing
departmental items and CAC Act body payment items in a
previous Act, which is substantially similar to the process for
reducing departmental items (clause 10) and CAC Act body payments
(clause 12).[8]

Like clause 14, clause 15
relates to previous Appropriation Acts which are listed in
subclause 15(8). Subclause 15(1)
enables the Prime Minister or a Minister acting on behalf of the
Prime Minister to request the Finance Minister to reduce a
departmental item in a previous Act [paragraph
15(1)(a)] or a CAC Act body payment item in a previous Act
[paragraph 15(1)(b)]. Subclause
15(2) enables but does not require the Finance Minister to
make a written determination to reduce a departmental item or a CAC
Act body payment item in a previous Act. Where the Finance Minister
has made a determination, the effect of the determination is
negated if the determination reduces the item below nil in the case
of a departmental item [paragraph 15(3)(a)]
or in the case of a CAC Act body item
[paragraph 15(3)(b)]. Subclause
15(5) provides that that a determination made by the
Finance Minister cannot be rescinded, revoked, amended or varied
despite subsection 33(3) the Acts Interpretation Act 1901.
Subclause 15(6) provides that a request made
under subclause 15(1) is not a legislative
instrument within the meaning of section 5 of the Legislative
Instruments Act 2003.
Subclause 15(7) provides that a determination
made under subclause 15(2) is a legislative
instrument and that despite subsection 44(2) of Legislative
Instruments Act 2003, section 42 of that Act—which
relates to disallowance—applies to the determination.
Subclause 15(7) also provides that Part 6 of
the Legislative Instruments Act 2003—which relates
to sunsetting—does not apply to the determination. In short,
this means that the Finance Minister’s determinations are
disallowable by Parliament, but once made, will not expire.

Clause 16 Crediting amounts to Special Accounts
provides that if the purpose of an item in Schedule 1 is also
the purpose of a Special Account (regardless of whether the item
expressly refers to the Special Account), then amounts may be
debited against the appropriation for that item and credited to the
Special Account.

Clause 17 Appropriation of
the Consolidated Revenue Fund provides that the
Consolidated Revenue Fund is appropriated for the purposes of the
Bill including the operation of the Bill as affected by the
Financial Management and Accountability Act 1997.

Schedule
1—Services for which money is appropriated

Schedule 1 lists the portfolios and the amounts
the Bill appropriates to each. The following is the
Summary from the Bill.

Concluding comments

It is difficult to relate the items in Schedule
1 to the measures announced in the second reading speech
by the Treasurer, the Hon. Wayne Swan, because the Bill will fund
only some of the measures. Further information can, however, be
found in the Portfolio Budget Statements for
2010–2011.[9]

Members, Senators and Parliamentary staff can obtain further
information from the Parliamentary Library on (02) 6277 2464.